Esma cautions against large-scale application of distributed ledger tech

Esma cautions against large-scale application of distributed ledger tech

The European Securities and Markets Authority (Esma) warns that any large-scale use of distributed ledgers across the financial services sector would first need to address a number of key challenges in terms of interoperability, governance and privacy issues and risk creation.

The EU regulatory body believes that likely first areas of use may be less automated processes in low volume market segments and processes with minimum dependency on the existing legal framework.

"The development of a new technology, such as DLT, does not liberate users from complying with the existing regulatory framework, which provides important safeguards to ensure the stability and proper functioning of financial markets," states Esma. "Beyond pure financial regulation, broader legal issues, such as corporate law, contract law, insolvency law or competition law, may affect the deployment of DLT."

Active engagement from regulators and coordination at EU and international level are paramount in Esma’s view to ensure both that DLT does not "create unintended risks and that its benefits are not hindered by undue obstacles".

The watchdog believes that regulatory action is premature at this stage, but instead calls on the industry to work towards solutions to address the challenges posed by the technology.

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